Monthly Archives: September 2009

Policy Brief: Replacing One Ignored Trigger with Another

“I will not sign [health care legislation] if it adds one dime to the deficit—now or in the future.  Period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize.”

 — President Obama, address to Joint Session of Congress, September 9, 2009

President Obama has promised that health “reform” legislation will cost less than $900 billion, and will not add one dime to the deficit.  However, his rhetorical promise of a “trigger” to impose additional spending cuts if costs exceed expectations belies the actions of the Administration and Democrats in Congress with respect to an existing trigger designed to keep Medicare spending at sustainable levels:

  • Created as part of the Balanced Budget Act of 1997, the Medicare Sustainable Growth Rate (SGR) formula was designed in much the same way as the President’s new proposal.  If Medicare spending on physicians’ services exceeded projections, future years’ payments would be reduced to offset that spending growth.
  • While imperfect, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, and to some extent it has worked, forcing offsets in some years and causing physician payment levels to be scrutinized annually as if they were discretionary spending.  However, Congresses of both parties have previously acted to forestall one year’s cuts by imposing additional cuts in future years rather than offsetting the entire cost up-front.  The result has created a projected 21 percent cut in physician reimbursements this January, followed by cuts of 5 percent in future years.
  • The White House has proposed a new “solution” to this fiscal dilemma—one that involves hundreds of billions in new deficit spending.  In its February budget, the Administration proposed incorporating an additional $330 billion into the budgetary baseline—increasing federal spending without offsets—to reflect adjustments to the SGR formula, giving physicians within Medicare an increase of approximately 1 percent annually for the next ten years.  The budget document justifies this change as “reflect[ing] our best estimate of what the Congress has done in recent years” to forestall physician payment cuts.
  • In a similar manner, House Democrats’ government takeover of health care (H.R. 3200) would amend the SGR formula to provide a zero percent increase over the next decade—the total cost of which stands at $285 billion over ten years, according to the Congressional Budget Office.  However, like the Administration’s budget proposal, H.R. 3200’s new SGR spending is also not paid for—but the assumption that a permanent “doc fix” somehow “doesn’t count” for deficit purposes has led some Democrats to make the false assertion that their bill is deficit-neutral.
  • Conversely, legislation unveiled by Senate Finance Committee Chairman Baucus does not include a permanent fix to the SGR formula, choosing instead a one-year, 0.5 percent increase in 2010 at a cost of $10.7 billion.  However, because the legislation specifies that the 2010 increase shall not be taken into account when determining future year spending targets under the SGR, physicians would receive a 25 percent decrease in reimbursement levels beginning in 2011, and further reductions in 2012 and future years, under the Baucus bill—an action which, given past Congressional actions to override scheduled physician payment cuts, many would view as highly unlikely.
  • In other words, confronted with a spending trigger very much like the one the President wants to impose on the entire health care system, the Administration and House Democrats have acted to override the trigger entirely to create hundreds of billions in new federal spending, while the Senate Finance Committee would ignore it in the hope that an as-yet-undetermined solution arrives in the future.

Given the general unwillingness to tackle a twelve-figure shortfall at a time when the federal deficit approaches $1.6 trillion, many may have sharp questions about the larger budgetary implications of the SGR—and any future “triggers” on federal health spending:

  • Will Democrats spend more than one-quarter of the President’s overall $900 billion spending cap on an SGR fix?
  • If they do not fix the SGR now, how do Democrats propose to solve this problem in the future?  Will additional savings be taken out of Medicare over and above the $400-500 billion being contemplated in this round of “reform?”  Will taxes be raised to increase Medicare reimbursements to doctors?  Or will Democrats choose additional deficit spending in future years even though President Obama has pledged that his plan will not add “one dime” to the nation’s budget deficits?
  • How does either overriding or ignoring the budgetary implications of the SGR qualify as “fiscal discipline?”
  • If Democrats cannot arrive at a permanent SGR solution—one that does not add one dime to the deficit—as part of their health reform plans, why should anyone believe in the efficacy of the new “triggers” the President and some in Congress have proposed?

While Members may support reform of the SGR mechanism, many may oppose what amounts to an obvious attempt to incorporate a permanent “doc fix” into the baseline—a gimmick designed solely to hide the apparent cost of health “reform.”  Moreover, many may believe that—given the President’s commitment to create another SGR-like trigger to ensure budgetary discipline—any Democrat legislation that does not include a fully-paid for solution to the SGR problem, and chooses instead to defer those tough choices to another day and another Congress, is neither fiscally responsible nor publicly credible.

Policy Brief: House Democrats’ Health “Reform” Will Harm American Economy

Even as unemployment approaches 10 percent nationwide, a recent Heritage Foundation analysis found that House Democrats’ government takeover of health care (H.R. 3200) would demolish or destroy hundreds of thousands more jobs and lead to further economic stagnation:

  • The Center for Data Analysis model of the economic effects of the $534 billion surtax imposed in H.R. 3200 resulted in hundreds of thousands of job losses—nearly half a million, to be precise.  The model found that in 2019, employment levels would be lower by 452,000 jobs than under current law.
  • By discouraging high-income workers—the majority of whom are small businesses—from making additional investments that add value to their enterprises, the surtax would result in lower economic growth—an average of $46.7 billion per year in lost GDP over the next decade, with those numbers growing until reaching $68.2 billion in 2019.
  • The lower growth and fewer jobs created by the surtax would also affect the pockets of millions of all Americans.  Specifically, the analysis found that disposable incomes for a family of four would be reduced by $995 in 2019 when compared to current projections if the surtax were to become law.  Some may also note that the lower levels of disposable income for all families as a result of the surtax on certain high-income individuals could be viewed as violating the President’s “firm pledge” that no one with an income under $250,000 would face tax increases.
  • The Heritage analysis did not include the hundreds of billions in new taxes imposed beyond the surtax—including more than $200 billion in higher taxes associated with the employer mandate and $29 billion in taxes on individuals who cannot afford to purchase government-mandated health insurance.
  • Other independent studies have confirmed the impact of the bill’s proposed new tax on jobs—i.e., employer mandates.  For instance, the Congressional Budget Office noted that, “a pay-or-play provision could reduce the hiring of low-wage workers, whose wages could not fall by the full cost of…a substantial pay-or-play fee if they were close to the minimum wage.”  Harvard Professor Kate Baicker has also published an analysis demonstrating that at least 5.5 million low-wage workers would be “at substantial risk of unemployment” due to new mandates on employers—and that minority workers were twice as likely to lose their jobs as their white counterparts as a result.

At a time when unemployment stands at a 26-year high—and with job losses still rising—many may use these studies as further confirmation that by imposing more than $800 billion in tax increases, H.R. 3200 would cause additional damage to the American economy—above and beyond those created by the government takeover of health care which the legislation would create.

Policy Brief: House Democrats’ “Tort Reform:” More Giveaways to Trial Lawyers

Even as President Obama promised to address tort claims as part of his health “reform” proposals, House Democrats’ government takeover of health care (H.R. 3200) would maintain and expand trial lawyers’ ability to bring job-killing and costly lawsuits against businesses:

  • Section 1451 permits State Attorneys General to bring actions against drug manufacturers regarding disclosure of their relationships with physicians, which, coupled with the millions of dollars in potential new fines, would further raise costs for manufacturers and discourage the development and diffusion of life-saving breakthroughs.
  • Section 153 creates new whistleblower protections against employees who file complaints regarding actual or potential violations of the Act’s provisions.  This section could increase the number of lawsuits filed against firms by disgruntled employees on the grounds that they were “about to provide” information regarding an employer’s non-compliance with the bill’s numerous mandates, raising the cost of health care—exactly the opposite effect of the bill’s purported goal.
  • Section 1415 extends federal whistleblower protections to current and former employees of nursing facilities regarding complaints made about that facility and permits victims of discrimination to pursue action against the facility in federal court.  The bill permits successful whistleblower plaintiffs to receive damages as well as “reasonable attorney and expert witness fees”—with no statutory caps on same—and prohibits any contractual arrangement from waiving or infringing upon whistleblowers’ rights.  These provisions constitute an invitation to lawsuits against nursing home facilities, the cost of which could significantly hinder the facility’s ability to provide quality patient care.
  • Section 132 of the bill as introduced requires all insurance companies to establish third-party review processes for denied claims that would be binding upon the carrier—but does not restrict individuals’ ability to pursue lawsuits even in the event of an “adverse decision” by the independent experts.
  • Section 151 imposes additional mandates and regulations on all insurance plans—including those offered by employers—while maintaining current-law State and federal regulations, and providing that “rights and remedies under State laws” will continue to apply.  These provisions could subject employers to review by 50 different State courts, thereby raising costs and encouraging more employers to drop their current health plans.

While the above provisions demonstrate that House Democrats are unwilling to restrain the demands of the trial bar when it comes to actions against private industry, H.R. 3200 shows no such compunctions with regard to protecting individuals from arbitrary actions by their government:

  • Section 223(f) prohibits judicial review of payment rates established by the new government-run health plan—preventing underpaid doctors and hospitals from seeking payment levels that actually reflect their costs, rather than a bureaucrat’s vision of what those costs should be.
  • Section 1123 prohibits judicial review of the determination of efficient counties or areas receiving 5 percent bonus payments under Medicare—potentially preventing providers who are actively working to reduce health costs from receiving financial rewards for their efforts.
  • Section 1151 prohibits judicial review of the methodologies used to determine which hospitals will receive payment reductions for high numbers of preventable re-admissions, potentially penalizing hospitals with sicker-than-average patients.
  • Section 1156 prohibits judicial review of the exception process that allows physician-owned hospitals to grow—allowing unelected bureaucrats further to restrict the development of facilities that have made progress in increasing quality of care and decreasing patient infection rates.
  • Section 1301 prohibits judicial review of the details surrounding the accountable care organization pilot program established in the bill, allowing bureaucrats in the Centers for Medicare and Medicaid Services to exclude without penalty potentially innovative physicians, teams of providers, or new ownership structures that could slow the growth of health costs.
  • Section 1303 prohibits judicial review of the new 5-10 percent bonus payments to primary care physicians, which could prevent some providers from receiving additional incentives to practice primary care medicine.
  • Perhaps most importantly, no provision in the bill would establish any right of judicial review for individuals harmed by the decision of a government health program to use clinical or cost-effectiveness research to deny care.  Given the myriad new litigation rights permitted against the private sector in H.R. 3200, many may question why patients denied access to life-saving treatments by their own government should not have a right of recourse when harmed—or whether Democrats’ failure to do so in the bill constitutes a tacit admission that the government-run health plan will provide “one-size-fits-all” care not directed to a patient’s needs.

Thus even as President Obama calls for tort reform, an analysis of H.R. 3200 reveals what House Democrats consider such “reform” to mean—enriching trial lawyers over small businesses struggling to provide health insurance to their workers, and protection of unelected bureaucrats from legal actions by patients and doctors harmed by the federal government’s actions.  Many may therefore question whether this “change” in favor of the trial bar is one the rest of the country can believe in.

Policy Brief: If You Like Your Current Plan…Don’t Tell Max Baucus

While the bill produced by Finance Committee Chairman Baucus is being portrayed by some media outlets as a “moderate compromise,” in reality the legislation could force millions of Americans to lose their current coverage—or pay more for their existing plan—in a government takeover of health care:

  • The bill imposes a flat $2,000 limit—one not indexed to inflation—on tax-deductible contributions to Flexible Spending Arrangements (FSAs) beginning in 2013, raising taxes by $16.5 billion over ten years, according to the Joint Committee on Taxation.  The Labor Department reports that one third of all private-sector workers have access to FSAs, meaning tens of millions will have their access to a popular form of health coverage restricted.
  • The bill doubles the tax penalty for non-qualified withdrawals from Health Savings Accounts (HSAs)—creating harsher penalties for non-qualified HSA withdrawals than those for non-qualified 401(k) or Individual Retirement Account distributions.  At least 8 million individuals hold insurance policies eligible for HSAs, and these individuals would be subject to additional restrictions—and tax increases—under this provision.
  • Chairman Baucus’ mark would eliminate the deduction allowable to employers receiving subsidies from Medicare for providing prescription drug coverage to retired employees.  This multi-billion dollar tax increase on employers could result in job losses or businesses dropping retiree drug coverage, meaning seniors could lose their current prescription drug plan.
  • The bill cuts $123 billion from Medicare Advantage plans, which according to the Congressional Budget Office (CBO) would result in nearly three million fewer seniors than projected enrolling in the popular program—and would further limit beneficiary choice and access.
  • When asked whether he would support an amendment offered by Finance Committee Democrat Bill Nelson ensuring that seniors do not lose their current Medicare Advantage plans, President Obama repeatedly declined to offer such assurances, instead commenting that “change is hard”—implying that seniors will be forced to change their coverage under the President’s vision of health “reform.”
  • While the President stated that “people who are currently signed up for Medicare Advantage are going to have Medicare and the same level of benefits,” CBO Director Doug Elmendorf testified that fully half of the benefits currently provided to seniors under Medicare Advantage would disappear due to the Baucus proposals.
  • Despite the President’s assertion that Medicare Advantage merely subsidizes insurance companies, a Government Accountability Office report found that MA beneficiaries saved an average of $804 per year in reduced cost-sharing and premiums.  Plans also use their rebates to provide extra benefits not covered by government-run Medicare, such as dental, vision, and hearing coverage.
  • For all these reasons, even Democrats have difficulty supporting their leadership’s government takeover of health care; Rep. Michael Michaud, in discussing his “serious concerns about the House bill,” noted that “I know they [Democrat leaders] say seniors aren’t going to lose their benefits but quite frankly, I think that’s a little disingenuous.”

Given that most insured Americans are happy with their current plan, many may question the wisdom and necessity of raising taxes and cutting choices to strong-arm them into a new system of bureaucratic mandates—particularly when the richer benefit packages from those mandates will likely raise health costs, not lower them.   Moreover, some may question whether the “reforms” being contemplated will soon lead to controls on prices—or limits on access to life-saving treatments—being placed on Americans’ coverage to control the skyrocketing costs accelerated by new federal mandates.

Policy Brief: AARP: Helping Seniors or Helping Itself?

“There’s an inherent conflict of interest….They’re ending up becoming very dependent on sources of income.”

 — Former AARP Executive Marilyn Moon, quoted in Bloomberg article

This week the Centers for Medicare and Medicaid Services announced it was investigating Humana for providing “misleading” information regarding the Administration’s proposed cuts to Medicare Advantage policies—and prohibited other Medicare Advantage plans from providing similar information on how Democrat health “reform” could take away their current coverage.

Yet the Administration’s edict prohibiting plans from communicating with their beneficiaries failed to include AARP, which sponsors a Medicare Advantage plan but has been a prime advocate of Democrats’ government takeover of health care—quite possibly because AARP has been supporting a health care overhaul from which it stands to gain overall handsomely.  Even as AARP advocates for cutting Medicare Advantage plans by more than $150 billion, an analysis of the organization’s operations reveals that it stands to receive tens of millions of dollars at the expense of seniors’ medical care—with Democrats’ full approval:

  • The Congressional Budget Office has previously estimated that the cuts to Medicare Advantage plans proposed in Democrats’ government takeover of health care (H.R. 3200) would cause millions of seniors to lose their current plan and enroll in government-run Medicare.
  • Because the government-run Medicare benefit is less generous than most private health plans, the independent Medicare Payment Advisory Commission found in June that more than nine in ten seniors not in nursing home settings utilize some form of Medicare supplemental insurance.  While many of these individuals currently rely on Medicare Advantage plans for the extra benefits they provide to seniors, many would be forced to purchase supplemental Medigap policies should their existing Medicare Advantage plans be taken away from them due to Democrats’ government takeover of health care.
  • A review of its financial statements finds that in 2008, AARP received more than half a billion dollars in revenue from selling products like Medigap supplemental insurance policies—$652.7 million in direct “royalties and fees,” and an increase of more than 31 percent from the $497.6 million in similar revenue AARP generated in 2007.
  • Royalty revenues now comprise more than half—60.3 percent—of all AARP revenues; a Bloomberg news analysis published in December found that in 1999, royalties comprised only 11 percent of the organization’s total revenues.
  • The Bloomberg article—which highlighted what one observer called AARP’s “dirty little secret”—profiled seniors who felt betrayed after paying hundreds of dollars above market price for AARP-branded coverage.  One noted that “AARP has great buying power, and people should be able to get the best deal….This is unconscionable, what AARP has allowed to happen.”  Another disillusioned senior wrote to the organization’s leadership asking whether AARP had a “‘special relationship’ with [insurance carriers] by which it receives commissions, incentives, rebates, or dare I say ‘kickbacks?’”—and when he arrived at AARP headquarters for a tour, was promptly escorted out of the marble-covered atrium.
  • While H.R. 3200 would place strict price controls on Medicare Advantage plans—requiring them to pay out 85 percent of premium revenues in medical claims—Medigap policies face a far less strict 65 percent requirement.  In other words, under the Democrat bill, seniors could pay as much as 20 cents more out of every premium dollar to fund “kickbacks” to AARP-sponsored Medigap plans than Medicare Advantage plans.

The higher prices charged by AARP plans, and the organization’s increasing dependence upon revenue from “royalties,” provide tangible evidence why AARP would support cuts to Medicare Advantage that would likely increase their “kickbacks” from Medigap plans.  However, it does not answer several key questions:

  • Given the myriad new layers of insurance regulation included in Democrats’ government takeover of health care, why does the legislation not include a single provision attempting to impose any new restrictions on Medigap policies?
  • Did Democrats “forget” to protect seniors—or were they informed that AARP could not support legislation that would limit its lucrative revenue source?
  • Similarly, did CMS “forget” to include AARP among the organizations whose First Amendment rights to inform seniors of harmful Medicare provisions were restricted—or did the Administration only wish to silence its critics, and not outside organizations using “kickbacks” to fund advertising in support of the Democrat agenda?

These questions hint at a more fundamental query: With seniors believing that AARP is “making money on the backs of old people,” who should believe that the organization is looking out for seniors’ interests and not its own?

Policy Brief: Baucus Bill Full of Budgetary Gimmicks

While the bill produced by Finance Committee Chairman Baucus is being portrayed by some media outlets as a “moderate compromise,” in reality the government takeover of health care contemplated by the legislation will be far more costly than advertised.  The provisions included only in the bill’s first few years—virtually all of which are likely to be continued beyond the temporary extensions in the legislation—reveals the full ten-year cost of the bill could approach $900 billion.  That higher cost does not even begin to calculate the impact of the Medicare Sustainable Growth Rate (SGR) formula for physician reimbursements on cost and deficit projections:

  • The Finance Committee mark does not include a permanent fix to the SGR formula, choosing instead a one-year, 0.5 percent increase in 2010 at a cost of $10.7 billion.  However, because the legislation specifies that the 2010 increase shall not be taken into account when determining future year spending targets under the SGR, physicians would receive a 25 percent decrease in reimbursement levels beginning in 2011, and further reductions in 2012 and future years, under the Baucus bill—an action which, given past Congressional actions to override scheduled physician payment cuts, many would view as highly unlikely.
  • Adding the nearly $300 billion cost of a permanent SGR “fix” to the Baucus bill’s spending level of $856 billion would raise total spending on health “reform” to more than $1.1 trillion—well above the President’s promised spending level.
  • The $38 billion cost of a long-term SGR fix (based on the specifications in H.R. 3200) in 2019 far exceeds the Baucus bill’s projected $16 billion surplus in the last year of the budgetary window.  In other words, if the costs of a permanent SGR fix are included, the Baucus bill is neither balanced within ten years or in its tenth year.
  • In stating that the Baucus bill could lower federal deficits in the years beyond 2019, the Congressional Budget Office found that its projections “assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case…For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified…to avoid reductions in those payments….The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.”

The lack of a permanent SGR fix raises several key fiscal questions that should be answered prior to the consideration of the Finance Committee legislation:

  • Does Chairman Baucus support a 25 percent cut in Medicare physician reimbursements beginning in 2011—as his bill presumes?  If he does not, how can he make a credible case that his bill is either deficit neutral or would spend fewer than $900 billion?
  • Given that the Baucus bill already includes more than $400 billion in savings from Medicare and Medicaid—and a commission designed to make additional, automatic cuts to Medicare spending in the event that program outlays exceed inflation—where exactly will the cost savings for future SGR “fixes” come from?
  • How realistic is the enactment of another Medicare cost containment trigger, given that the existing cap on physician spending in the form of the SGR mechanism has consistently been overridden by Congress?
  • Will Democrats propose future tax increases to pay for higher Medicare physician reimbursements?

In addition to the hundreds of billions in additional federal spending required to fix the SGR formula, a series of smaller provisions, if extended for the full 10-year life of the budgetary window, would have a big impact on total spending:

  • New five-year, $1.5 billion program for home visitation services;
  • Extension of the floor for geographic index for Medicare physician reimbursement through 2012 ($1.1 billion cost, according to the Congressional Budget Office);
  • Extension of exceptions process for Medicare therapy caps through 2011 ($1.8 billion);
  • Extension of treatment for certain Medicare pathology services through 2011 ($200 million);
  • Extension of increased payments for ambulance services under Medicare through 2011 ($100 million);
  • Extension of certain Medicare long-term care hospital reimbursement provisions through 2011 ($200 million);
  • Extension of payment adjustments for Medicare mental health services through 2011 ($100 million);
  • Extension of outpatient department hold harmless provisions for Medicare small rural and sole community hospitals through 2011 ($300 million);
  • Extension of Medicare dependent hospital program through 2013 ($100 million);
  • Temporary improvements to the Medicare inpatient hospital payment adjustment for low-volume hospitals in 2011 and 2012 ($300 million); and
  • Extension of Section 508 hospital reclassifications through September 2011 ($500 million).

While the individual provisions may generate comparatively minor scores for temporary extensions of two or three years, extending all these provisions through 2019 could cost approximately $20 billion through the entire ten-year period.  Given the presence of so many budgetary gimmicks—totaling close to $300 billion—in the Baucus legislation, many may consider the Finance Committee bill neither deficit-neutral nor fiscally responsible.

Policy Brief: Do Seniors Need a Social Security COLA?

In light of proposals being discussed to increase seniors’ Social Security cost-of-living adjustment (COLA), the following Policy Brief discusses the issue.

Background:  The Social Security Administration calculates the annual beneficiary COLA based on year-over-year increases in the consumer price index (CPI).  If consumer prices fall, Social Security beneficiaries would not receive a COLA increase—nor would they be penalized with a decrease.  According to the Congressional Research Service, seniors have received COLA increases every year since 1975; the COLA beneficiaries received beginning in January 2009 was the highest since 1982, when inflation was slowly declining after years of double-digit increases.  Bipartisan Congressional efforts established the COLA formula beginning in 1975 to offset the effects of inflation—which serves as a tax on thrift and savings.  Conversely, lower prices mean the same level of benefits will go farther and purchase more goods during difficult economic times.

Current Situation:  While the 2010 COLA will not be formally calculated until October based on third quarter CPI data, the Congressional Budget Office and other experts are projecting a zero COLA for 2010, and potentially for future years as well.  Beneficiaries received a 5.8 percent benefit increase in 2009, largely due to the significant run-up in energy prices during 2008.  By contrast, lower energy prices and a fall in consumer prices generally due to the current recession could result in a mild period of deflation with respect to the COLA formula, such that it may take several years for prices to exceed 2008 levels.

Former Social Security Administration official Andrew Biggs estimates that seniors received an above-inflation increase of $516 in 2009, based largely on the timing of the COLA formula; third quarter data reflected high energy prices, but not the subsequent fall in both energy and consumer prices after the economic events of last fall.  In fact, the Wall Street Journal notes that consumer prices have fallen by 2.3 percent over the last nine months—meaning that current Social Security benefit payments are worth relatively more in terms of buying power than earlier this year without an additional COLA increase.

Deficit Implications:  Various proposals have been discussed to prevent seniors from “losing out” on a COLA adjustment—even though, as noted above, Social Security benefit checks buy more than they did at the beginning of the year irrespective of an additional increase.  The proposals could take the form of a one-time payment to seniors, similar to that included in the “stimulus” bill, or an adjustment overriding the COLA formula to give seniors yet another benefit increase.

The costs of providing such an “adjustment” could be significant, as providing a $250 one-time benefit to seniors in the “stimulus” bill using general revenues cost $13.1 billion.  Such payments would place further burdens on the Social Security trust funds—which face a cumulative deficit of $5.3 trillion—and add to a federal deficit that already exceeds $1.6 trillion.  Moreover, the COLA formula effects other government calculations, including those for Supplemental Security Income benefits, railroad retirement benefits, and veterans’ pensions.  Depending on its structure, a COLA adjustment could significantly increase federal spending over and above that for Social Security retirees.

Conclusion:  Despite various claims to the contrary, Social Security beneficiaries have enjoyed a real-terms increase in the purchasing power of their benefit checks—and will continue to do so even in the absence of a COLA adjustment.  While Democrats may intend to assuage seniors’ concerns regarding their government takeover of health care by overriding the Social Security COLA formula, some Members may be skeptical about spending billions to provide an expensive additional “benefit” that adds to existing deficits.

Policy Brief: Obamacare Is a Massive Middle-Class Tax Increase

“I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” 

   —President Barack Obama, Rally in Dover, New Hampshire, September 12, 2008

“Merriam Webster’s Dictionary: Tax—‘a charge, usually of money, imposed by authority on persons or property for public purposes.’” 

 —George Stephanopoulos, interview with President Obama, September 20, 2009

One year after making his now-famous “No new taxes” pledge during the campaign, President Obama has attempted to deny the impact of his health “reform” proposals on the middle class.  However, most economists, his own advisors, his previous campaign rhetoric, and sheer logic all dictate that the President should provide straight answers to several inconvenient questions:

  • Finance Committee Chairman Baucus’ bill would require individuals with three times the federal poverty level to spend 13 percent of their income on health coverage premiums.  Committee staff estimates found that in 2016—the fourth year after the bill’s mandates and insurance “reforms” would take effect—a family of four making $72,000 would be required to pay up to $9,400 in premium costs alone.  Additionally, a family subject to the bill’s maximum annual cost-sharing would spend 29.5 percent of its income on health costsHow is requiring Americans to spend nearly one in seven dollars of income to pay for government-approved insurance, and nearly one in three dollars on potential health care costs—more than a family’s mortgage payments in most parts of the country—not a massive tax increase on the middle class?
  • In a January 31, 2008 presidential debate, candidate Obama asked how a mandate to purchase health insurance would be enforced: “Are you going to garnish [people’s] wages?”  Likewise, on Meet the Press in April 2008, Obama’s senior campaign advisor David Axelrod criticized Hillary Clinton on the same grounds: “She said, ‘I will…garnish people’s wages if they don’t sign up for this health care plan’…Her mandate is a mandate on people to buy health insurance.”  How is “garnishing people’s wages” to enforce an individual mandate not a tax increase on the middle class?
  • All the Democrat bills include tax penalties, administered through the Internal Revenue Service, for individuals and families who do not purchase “government-approved” coverage.  Page 29 of the Baucus bill would subject families with incomes higher than three times poverty to an “excise tax” of up to $3,800 per year.  Likewise, page 167 of the introduced version of House Democrats’ government takeover of care (H.R. 3200) includes the following language: “There is hereby imposed a tax” on individuals who do not purchase “government-approved” insurance—and neither the House nor the Senate bills exempt those with incomes under $250,000 from the penalties.  How is what the legislation plainly calls a new tax on all Americans not purchasing “government-approved” insurance not a tax increase on the middle class?
  • Senior Obama Administration officials have also dubbed government mandates to purchase insurance for what they are—tax increases.  Chief Health and Human Services policy advisor Sherry Glied has previously written that a mandate has the potential to be a “very regressive tax, penalizing uninsured people who genuinely cannot afford to buy coverage.”  Moreover, the National Economic Council Director, Larry Summers, has also written that government mandates to purchase or provide various benefits “are like public programs financed by benefit taxes,” and that most economists regard such mandates “as simply disguised tax and expenditure measures.”  How is what one of the Administration’s own advisors called a “very regressive tax” not a tax increase on the middle class?
  • The Baucus bill includes nearly $215 billion in tax increases on insurance companies who offer high-value insurance policies—which the President endorsed in his address to Congress.  Both business and union groups alike are concerned that these taxes will be passed on to middle-class families in the form of higher premiums—exactly what candidate Obama criticized during his campaign as “taxing people’s benefits.”  How is raising Americans’ insurance premiums through indirect taxes on insurance companies, and then forcing all individuals to purchase this more expensive coverage, not a tax increase on the middle class?
  • The Baucus bill also includes an additional $93 billion in “industry fees” on insurance companies, pharmaceutical companies, device manufacturers, and clinical labs.  Many economists agree that some, if not most, of these tax increases will be passed on to consumers of all incomes.  How are higher fees for life-saving medical services used by millions of Americans not a tax increase on the middle class?

Given the overwhelming arguments—from Administration officials, President Obama’s prior statements, and the legislation itself—many may view the Democrat health “reform” agenda as imposing tens of thousands of dollars in tax increases on vulnerable middle-class families to fund a government takeover of health care.

Policy Brief: Study Admits: Government-Run Plan Will Raise Private Insurance Premiums

A study recently published in the journal Health Affairs has confirmed what many have feared—that enrollment in a government-run health plan could cause premiums for private health coverage to skyrocket, as doctors and hospitals charge private patients more to compensate for low government reimbursements:

  • The study followed up on earlier work conducted by independent actuaries at the consulting firm Milliman that found families with private coverage currently pay nearly $1,800 more in health costs to subsidize lower payments made by government-run health plans like Medicare and Medicaid, and attempted to extrapolate the impact of a new government-run health plan on both hospitals’ finances and private health premiums.
  • While the study found that enrolling previously uninsured individuals in a government-run plan paying Medicare reimbursement rates would not adversely affect hospital finances, it also concluded that any subsequent shift of individuals with private coverage into the government-run plan could have disastrous consequences on medical providers.  If the government-run plan enrolled even one quarter of individuals currently with private coverage, hospitals’ negative margins on patient care would rise by as much as 50 percent.  And if a government-run plan reimbursing at Medicare rates plus 10 percent—more generous than H.R. 3200 as introduced—enrolled 75 percent of those with private coverage, the study “suggests a tripling of cost-shift pressures on [private] premiums.”
  • The study then attempted to use the government-run plan’s impact on hospital finances to project how all providers would shift their costs from the government-run plan to private insurance carriers—and how premiums would rise as a result.  The authors concluded that the cost-shift pressures could cause insurance premiums to skyrocket: For a family of four, “The range of increase would be…$3,024-$4,536 nationally.”
  • As significant as those potential increases are, the study’s authors also assume that only about half of the losses stemming from lower government reimbursements would be passed on to private payers in the form of higher costs.  If in fact hospitals and providers are unable to make the efficiency gains necessary to absorb 50 percent of the loss, cost-shifting—and private insurance premiums—could rise even higher than the study’s projections.

Independent experts all agree that the legislation proposed would result in millions of Americans losing the coverage they have—the Congressional Budget Office believes several million, the Urban Institute up to 47 million, and the Lewin Group as many as 114 million.  Given the results of this new study, many may question why Democrats insist on including a government-run health plan in their takeover of health care—since such a change could result in skyrocketing premiums for those individuals with the audacity to attempt to keep their current coverage.

Policy Brief: Larry Summers Admits: Obamacare Is a Government Takeover of Health Care

“Now my proposal has been attacked by some who oppose reform as a ‘government takeover’ of the entire health care system….If you misrepresent what’s in this plan, we will call you out.”

 — President Obama, address to Joint Session of Congress

Even as he derides opponents who criticize his health “reform” proposals, President Obama may do well to listen to the words of his own National Economic Council Director, Larry Summers, who in an earlier article admitted that mandates on employers and individuals to provide and purchase health coverage amount to a government takeover of health care:

  • The main thesis of the paper—which analyzes government mandates on employers to provide various benefits—finds that “essentially, mandated benefits are like public programs financed by benefit taxes.  This makes them more efficient but less equitable than standard public programs.”
  • The article admits that “economists have generally devoted little attention to mandated benefits—regarding them as simply disguised tax and expenditure measures.”
  • To justify government-mandated benefits, Summers argues in favor of “paternalism” by government and employers—because individuals “may irrationally underestimate the probability of catastrophic health expenses,” or may be “especially inept at making inter-temporal decisions.”
  • The Summers analysis further includes the impact of government-mandated benefits: “Requiring employers to pay for employee leaves [or health care benefits] shifts their demand curve downwards…A new equilibrium level of employment and wages is reached, with lower wages and employment, but in general employment will be reduced by less” than under a system of government-provided benefits.
  • Finally, the article discusses potential downsides to mandated benefits—if the cost of health care is higher for older or sicker workers, “there will be efficiency consequences as employers seek to hire workers with lower benefit costs.”

In sum therefore, Summers makes the following points, all of which relate to the current debate:

  • Mandates on employers to offer—and individuals to purchase—health coverage amount to new federal programs, and thus a government takeover of health care for all Americans;
  • Employer-provided benefits are “more efficient” than “standard public programs”—so an inefficient government-run health plan should not be needed;
  • Mandates to purchase coverage are taxes—so the President’s individual mandate breaks his “firm pledge” that “no family making less than $250,000 a year will see any form of tax increase;”
  • Government should mandate the purchase of health coverage due to the “irrational” and “inept” behavior of individuals who do not wish to purchase it;
  • Mandated benefits will lead to lower wages and employment—even as unemployment nears 10 percent; and
  • Because they discourage the hiring of sicker workers, “mandated benefit programs can work against the interests of those who most require the benefit being offered.”

Given these characterizations by one of his senior advisors, will President Obama now call out the Democrat plan for what it is—a government takeover of health care?